After facing unexpected resistance, Amazon made a shocking announcement that it would abandon its plans for a second headquarters in Long Island City. Politicians, lawmakers, union leaders, and members of the surrounding community starkly opposed Amazon’s HQ2, citing a number of concerns including the nearly $3 billion in tax incentives that had been promised to Amazon.

In a statement issued last week, Amazon stated that “while polls show that 70 percent of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City.”

The Search for HQ2

In 2017 we reported that Amazon had launched a nationwide search for a second headquarters location. The behemoth company promised 50,000 high-paying jobs, on top of the “tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community” to the winning location and planned to invest over $5 billion in construction.

With the promises made and Amazon’s success in Seattle, hundreds of cities jumped at the opportunity. A common aspect of each city’s proposals was the promise of lucrative tax incentives. For example, our 2018 article reported that the Columbus Department of Development presented Amazon a tax incentive package that offered 100 percent property tax abatement at all Amazon sites for 15 years and promised that 25 percent of Columbus city taxes on employee income would go into a Transit and Mobility Fund to support infrastructure for the project and to benefit Amazon.

Ultimately, Amazon announced that it would split HQ2 operations between Virginia and New York, partly to ensure that it could recruit enough tech talent. Despite Amazon’s plans to create at least 25,000 jobs and invest $2.5 billion in New York’s Long Island City neighborhood, the staunch criticism from the community proved to be too much for Amazon to handle.

Billions in Tax Incentives Not Enough to Keep Amazon

According to The New York Times, “the agreement to lure Amazon to Long Island City, Queens, had stirred intense debate in New York about the use of public subsidies to entice wealthy companies, the rising cost of living in gentrifying neighborhoods, and the city’s very identity.” Those opposed to the new headquarters claimed that the tech giant did not deserve $3 billion in government incentives and feared that the massive change in community would drive lower income families out of the area and put a strain on the transit system. The Wall Street Journal reported that Amazon executives sat through two hearings “where they were grilled about the incentives package” and were forced to face hundreds of protestors and “heated exchanges between Amazon officials and city council members.”

Amazon faced particularly stark opposition from local democratic leaders including Representative Alexandria Ocasio-Cortez and Senator Michael Gianaris of Queens. In fact, The New York Times speculated that a “decisive moment appeared to come” after Senator Gianaris was selected for a state board that came with the power to singlehandedly veto the deal. In an interview with The New York Times, Senator Gianaris stated that “like a petulant child, Amazon insists on getting its way or takes its ball and leaves. The only thing that happened here is that a community that was going to be profoundly affected by their presence started asking questions.”

What’s Next for Amazon?

While its plans for New York fell through, Amazon is still moving full steam ahead at its Virginia HQ2 location. Additionally, in its statement, Amazon indicated that it will not reopen its headquarters search but will continue to “proceed as planned in…Nashville and will continue to hire and grow across [its] 17 corporate offices and tech hubs in the US and Canada.”

It is too soon to determine whether Amazon will face any consequences due to its decision to abandon New York, namely, where it will find the tech talent that it initially cited in the company’s reasoning to split HQ2 between two locations. Further, Amazon’s surprise change of heart raises questions regarding state tax incentives for large companies and whether or to what extent the tax incentives truly affect locational decisions. Finally, perhaps equally important, is the potential affect on Amazon’s reputation and the affect it may have on cities’ desires to cooperate with the giant tech company in the future.

DAVID KALL

DAVID EBERSOLE

I take a team approach to working with clients to achieve their business goals. I leverage my public sector background to understand all perspectives and leave no tax planning or tax controversy stone unturned.